The news of job cuts comes as the company reported an underlying net loss after tax of $1.18 billion.

In response, the Government says it will channel $100 million from the already-announced steel transformation plan - part of the carbon price program - to BlueScope and help affected workers.

It will also set up a $30 million fund to encourage new business ventures and jobs in the Illawarra and Mornington Peninsula regions.

BlueScope's steel export business has been losing money for three years, since before the global financial crisis, and the blast furnace closure is not unexpected.

Australian Workers Union boss Paul Howes says the artificially low Chinese yuan means imported Chinese steel is cheaper than the local product, and mining companies are buying it rather than Australian steel.

"The minerals industry in this country [is] getting away with refusing to use Australian-made steel and Australian-made products in their expansion of their industry, simply because they are trying to save a buck," Mr Howes said.

Mining magnate Gina Rinehart is reported to have sourced railway tracks for a large project from China rather than buying Australian steel, but Treasurer Wayne Swan says it is unfair to expect companies to buy all their inputs locally.

"I also know it is unrealistic to expect that these major projects won't be sourcing a significant amount of product from overseas, because they are very big investments, and of course, product will be sourced from overseas," he told a press conference at Parliament House.

"It is just common sense."

Industry Minister Kim Carr says there is a Buy Australia campaign to encourage companies to use Australian steel - and more incentives are to come this week.

"We will be in a position to see a substantial improvement of economic opportunities as a result of the resources boom flowing through to steel fabricators for the various parts of manufacturing in Australia," he said.

The Minister says the closures at BlueScope may only be temporary.

"The company is in the position where it is putting various pieces of equipment into reserve ... and is prepared to reopen those facilities when the business climate improves," he told The World Today.

Difficult day

In the meantime, workers will also be eligible for assistance to re-train and find new jobs.

Those made redundant will be immediately eligible for relocation and family assistance payments.

The New South Wales Government says it will contribute $5 million towards the assistance package.

It will also have a role on a taskforce that is being established to address the specific needs of the Illawarra region.

Senator Carr says the Federal Government will ensure workers are treated properly.

"We are working very closely with individuals, with their unions, with the region in which they live, with the company, [so that we can] manage the change that's coming," he said.

Prime Minister Julia Gillard says the "fundamentals of the Australia economy are strong" but there are "patchwork pressures" that lead to the sort of problems faced by BlueScope.

"Those pressures arise, in part, from the very strong Australian dollar. It's a benefit for some industries, including manufacturing, that does put pressure on," she told reporters at Parliament House.

She says the closure will be a big blow for the Illawarra region.

"More than 600 local firms contract with BlueScope. The firm purchases more than $1.2 billion per annum in goods from the local economy and BlueScope provides goods worth more than $100 million per annum to the local economy.

"This is a difficult day for many working people and their families. We understand that. We'll always be determined to support Australians and their jobs."